Benefits Attract Tax
The tax year ends on 5 April 2007 and for
employers with higher-paid
employees and directors who receive a benefit-in-kind, such
as a car, it
is necessary to file details of those benefits with HM Revenue
and
Customs by 6 July 2007.
A 'higher-paid employee' is any employee who receives a salary
and
benefits at a rate of more than £8500 per annum.
In brief,
a
benefit-in-kind is any payment or 'perk' made by an employer
to an
employee other than by way of a salary. This includes company
cars,
vans, holidays, and payment of private bills such as home phone
or
school fees.
Calculating the benefit-in-kind
The method of calculating the benefit-in-kind will vary depending
on the
actual benefit. For many benefits this is the amount paid by the
employer or, if higher, the market value of the benefit. For example,
an
employer pays £1000 legal expenses on behalf of an employee.
The benefit
that must be reported is the full cost plus the VAT i.e. a total
of
£1175. The employee will have to pay tax on this full amount.
Cars
There are special rules for cars supplied by an employer which
the
employee is allowed to use for private journeys.
In broad terms, the amount of the benefit is based on the Manufacturer's
List Price (MLP) of the car and its CO2 emissions. The MLP will
be
available from the manufacturer's website and the latter is shown
on the
vehicle registration documents.
So, let's take an Audi car with an MLP of £30,000 and a
CO2 emissions
figure of 205g/km. Looking up 205g/km on the HMRC's emissions chart
gives a percentage is 28%, which is multiplied by the MLP of £30,000
to
give a benefit of £8400 (28% x £30,000). In this simple
example, the
employee pays tax on £8400.
National Insurance
As well as income tax, there are National Insurance implications.
If the
benefit was initially a liability of the employee, e.g. the legal
expenses mentioned above, the employee will be required to pay
employee's National Insurance and the employer will have to pay
employer's National Insurance on the benefit.
This National Insurance is due in the month the benefit is paid.
For most other benefits there is extra employer's National Insurance,
called Class 1A, which is currently levied at 12.8% and is due
on 19
July 2007, but no employee's National Insurance is due.
Forms for 2006/07
The main forms the employer must submit to HMRC are:
P11D - one for each employee with benefits, with a copy given to
the
employee. The P11D details all the benefits paid to that employee
in the
tax year.
P11Db - confirmation that all benefits have been correctly declared.
If you need any help or guidance with this complex area, please
do not
hesitate to contact us here at Appletons.
